There are two specific times each year when Naperville real estate investors find their thoughts wandering in the general direction of impending tax bills. As we approach year’s end, this is one of them. The other, of course, will be coming up in April—but this is the time of year when steps can be taken that affect the bottom line of what will come due later on.
My expertise is in Naperville real estate, so I don’t offer specific tax advice—as always, that’s best handled by your own financial advisor. But tax benefits (in the form of deductions) are always part of the picture when I’m helping clients find Naperville real estate for investment purposes. In that connection, there was one recent article that ran on the Realtor® web site that effectively summed up seven main tax advantages that Naperville real estate may offer owners who rent out their property. There are specific provisions in the tax code that qualify a property for each (which is why the piece was titled “Seven Possible Tax Deductions for Rental Property Owners”), but I think listing all seven possibilities in one place is worth repeating, so here goes:
Mortgage Interest Deduction (everyone already knows this one—the most obvious and potentially the most significant). What wasn’t mentioned in the Realtor article is the added possibility of deducting the expense for points paid in the year of purchase. That’s an expense that brings down a loan’s mortgage interest rate over the long haul while being deductible over the short haul.
Repairs – they have to be ‘necessary and reasonable.’ Likewise, improvements may qualify if they meet the same standard
Depreciation — this one is like other business assets that deteriorate over time due to wear and tear
Insurance — the expense common to many businesses
Professional and Legal — ditto
Outside labor — when you hire employees or independent contractors to ‘perform services…related to the rental.’
Travel — if your real estate causes you to travel (for instance, if you live out of town), fuel expenses and meals may be deductible.
As usual, the caveat is the need to keep detailed records of every expense (your Uncle Sam isn’t the kind of uncle who takes your word for things).
When you list them all together, you have to agree these make quite an attractive handful of tax deduction possibilities. They really do account for a major appeal that a real estate rental property can offer. To investigate the Naperville properties with investment potential, give me a call anytime!
Enjoy~ Joe Graham (331) 472-7653